Financing Costs of Additional Funds Needed: A Modified Equation Approach
Daniel T. Winkler · NC Digital Online Collection of Knowledge and Scholarship (The University of North Carolina at Greensboro) · 1994
The additional funds needed (AFN) equation is a popular forecasting model for estimating additional funds requirements (Brigham [3]). Academicians regard the AFN equation as an excellent pedagogical tool; practitioners find it highly beneficial for many forecasting needs. To apply the model, an analyst needs to know the amount of assets required per dollar of sales, the amount of spontaneous liabilities available per dollar of sales, the change in sales, and additions to retained earnings. Additions to retained earnings are calculated by multiplying the net profit margin by forecasted sales and the retention ratio.